Chapter 7 Managing Cunstomer Relationships With Mesures

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Chapter 7

Managing Customer Relationships with Measures

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• To achieve wants and needs of both the customer and organization the means are– To win potentially profitable new

customers, – To ensure profitable existing customers

do not defect and, you guessed, – To win back profitable former customers

who have already defected

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The components of achieving customer satisfaction and contribution

• Customers want– Fast• Rapid and reliable delivery of products and services

– Right• High quality products and services

– cheap • Reasonably priced products and services

– easy • Hassle free transactions and easy to do business with

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The components of achieving customer satisfaction and contribution

• Organization’s wants and needs– Profit

• Good level of profit to reinvest in improved products and services– Loyal customer– Growth

• Increase sales volume

– Opinion • Feedback from customers in terms of formal and informal survey inputs• Focus group participation in their product and services development initiatives• Process and delivery improvement suggestions

– Trust • Access to crucial information such as budget, capital investment in order to make

the supply chain effective and establish long-term relationship

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Intermediaries

• Who is our customer?– Is it the end users?– Is it the organization that buys and distributes the

product?– The children or the parents?

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Intermediaries

– Retailers: FMCG– Wholesalers – Brokers: financial services– Agents: financial services – Merchants – Dealers: car and truck selling– Distributors: pharmaceutical products

• What about doctors for the pharmaceutical industries?

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• The central points are:• who are our customers?• What are their wants and needs?

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Strategies • Extend and renew the products and/or

services it offers to its various customers.• Attract those potentially profitable new (and

lapsed) customers to buy the products and services offered.

• Ensure that existing customers are retained by satisfying their wants and needs very well.

• Grow the firm’s share of the target market segments it has identified as being attractive.

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Processes • Develop products and services

– R & D in manufacturing, merchandizing skill in retailing• Build market offering alliances

– Joint venture• Generate demand

– linked with the development stage• Fulfill demand

– activities between customer order and payment made; after-sales services

• Plan and manage enterprise processes– Resources and systems are made available

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Capabilities

• Resources and systems are made available• Employees are trained in the best practices• Policies are implemented• Facilities are built, upgraded and maintained

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Measures for Customer Relationship

• Measure customer complain• Find the root causes and solve them• The problem is most of the customers don’t complain• Their general perception is the organization will not

listen• Collecting complaints is hard in industrial goods• Improper complaint handling may lead the customers

to vote with feet• Satisfied customers are not always loyal customers

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Customer behaviors and certain rules of thumb

1 It costs five or six times more to win a new customer than it does to maintain an existing one – in banking, apparently it can be as much as 11 times more expensive.2 Between 94–96 per cent of dissatisfied customers don’t complain – they simply walk away. It is reckoned that 91 per cent of them will never come back.3 Of the customers who register a complaint, between 54 per cent and 70 per cent will do business with the company again if their complaints are resolved satisfactorily – this figure goes up to around 95 per cent if customers feel their complaints are resolved quickly.4 A typical dissatisfied customer will tell eight to ten people about their problem. One in five will tell 20. The advent of the internet now makes it possible to tell several thousand. On the other hand, a satisfied complainer will on average tell five people about the problem and how it was resolved to their satisfaction.

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5 It takes around 12 positive service encounters to make up for one negative incident.6 Only about 5 per cent of customers who experience an out-of-stock situation return to make the purchase originally planned.7 Around 68 per cent of customers stop doing business with suppliers because of an attitude of indifference towards them – only 14 per cent quit because they are dissatisfied with the product (so customers with a service problem are five times more likely to defect than customers with a product problem) and just 9 per cent leave for competitive reasons. 8 Between 80 per cent to 90 per cent of defecting customers say they are satisfied. But very satisfied customers are four (consumer products) to seven (industrial products) times more likely to repeat their purchase within the next 18 months than those customers who were merely satisfied.

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9 A rise of as little as 5 per cent in customer retention can result in an 80 per cent to 100 per cent increase in profits.10 Businesses with low service quality average only 1 per cent return on sales and lose market share at a rate of 2 per cent per annum. Businesses with high service quality average a 12 per cent return on sales, gain market share at the rate of 6 per cent per annum and charge significantly higher prices.

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• Use CRM Data• CRM should not be just plugging in some software

that enables standardized customer interface processes and captures basic transactional data.

• CRM software systems should act as a platform for gaining insights and making judgements on product and, particularly, service improvements that benefit a broad range of customers.

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• Service quality data• SERVQUAL MODEL: Dimensions of service

quality– Reliability– Responsiveness– Assurance– Empathy– Tangibles

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• Service quality data• Dimensions of service quality– Reliability is the ability to perform the

promised service dependably and accurately.– Responsiveness is defined as the willingness to help

customers and provide prompt service.– Assurance is the knowledge and courtesy of employees

and their ability to convey trust and confidence. It consists of four component parts: competence, courtesy, credibility and security.

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• Service quality data• Dimensions of service quality– Empathy is the caring, individualized attention the

firm provides its customers. It has three sub-components: accessibility, communication and understanding the customer.

– Tangibles are the appearance of physical facilities, equipment, personnel and communication materials.

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• Gaps in Service quality• Gap 1: Insufficient Marketing Research – the

gap between what customers expect and what the organization thinks they expect.

• Gap 2: The Wrong Service – Quality Standards – the gap between internal perceptions of customer expectations and performance specifications for service delivery.

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• Gaps in Service quality• Gap 3: The Service Performance Gap – the

gap between service specifications and actuals.

• Gap 4: When Promises Do Not Match Delivery – the gap between promises and delivery caused by inadequate horizontal communications within the organization and the propensity to over-promise.

• Gap 5: when the organization has no real idea what its customers do want.

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• Brand value and impact data– Many consumer products and services companies

view their brands as a significant part of their intangible assets and would like to see this represented on their balance sheet. Such a balance sheet entry would go some way towards explaining the often substantial difference between the market value of the company and the book value of its assets and liabilities.

– Advertising is one element of brand value building

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• Customer segmentation and behavior data– Consumer: millions of customers – Industrial customer: may be hundred or thousand

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• Website behavior data• Accenture’s research result on e-business shoppers in

1999• Product was out of stock.• Item wasn’t delivered on time.• Paid too much for delivery.• Connection trouble.• Didn’t get a confirmation or status report.• Selections were limited.• Site was hard to navigate.• Site didn’t provide enough information.• Prices weren’t competitive.• Site didn’t offer enough gift ideas.

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The customer relationship measures design process

• Who are our key customer groups and what do they each want and need?

• And what does our organization want and need from these customers?

• What are our strategies for satisfying these sets of wants and needs?

• How will our internal business processes effectively and efficiently deliver

• them?• Which particular capabilities do we need to build, maintain and

improve in• order to execute them?

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The customer relationship measures design process

• The first is to ensure that the measures (and, particularly, their metrics) are applied consistently across the organization and not in a localized ad hoc manner.

• The second is to create a hierarchy of measures so that all parts of the organization can understand how their operating measures relate to the organization’s strategic objectives, rather than in isolation.

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Some process and capability performance measures of supply chain

• Supply Chain Planning• Stock days of cover (by warehouse location)• Inventory holding costs (cost of capital +

warehousing).• Stock age profile (by product category/by

location).• Stock accuracy (write-ups/downs by location)• Sales forecast accuracy (by product/by

country).• Adherence to weekly production schedule.

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• Order Fulfillment• Percentage of orders delivered to first promise (by

location).• Percentage of orders delivered to customer request

(by location).• Number of stock-outs per month (by product/by

location).• Level of distribution-related customer complaints

(by category).• Customer supply satisfaction level versus

competitors (by country).

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• Physical Distribution• Cost per tonne shipped (per destination).• Tonnes shipped (per destination).• Warehouse man hours per tonne shipped.• Percentage packs repacked versus

shipped.• Percentage packs relabelled versus

shipped.

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The Customer Relationship Measures‘Failure Mode’ Test

• Validation of the customer measures selected• ‘Sanity check’ on the selected measures to ensure that

important aspects of customer relationship measurement have not been overlooked

• It is formulated by putting forward some sort of potential ‘worst case scenario’ and then tracking back to ensure that the right strategy, process and capability measures are in place to enable prevention of this ‘failure mode’ from severely affecting the business.

• It is a means of helping to mitigate the most potentially serious customer-related risks.

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Customer-centred measures

• Customer satisfaction measures– Existing customer satisfaction level (perception

surveys and independent or internal audits):– product design/quality/reliability in use– value-for-money

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Customer-related strategy measures• Number of customers• Level of new/existing product sales trend• Level of new/repeat business trend• Market share (by market –

product/segment/geography)• Customer profitability (by market –

product/segment/geography)

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Customer-centred measuresCustomer-related process measures• On-time delivery-to-promise performance• Level of requested delivery date/time refusals• Average delivery lead time/order cycle time• Level of inventory stock-outs (and inventory records accuracy)• Level of shipping/delivery/installation/billing errors [by type]• Cost of poor quality (e.g. scrap and rework, complaints

handling, inventory, etc.)• Advertising/Promotion response rates [by source]

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Customer-related capability measures• Level of demand versus capacity• Customer segmentation and profiling• Brand awareness, perceptions and positioning• Comparative selling price benchmarking• Revenues per sales channel/sales representative• Cost of attracting new customers versus

retaining existing ones [and breakeven level?

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Chapter 7 Managing Cunstomer Relationships With Mesures